A matching persepctive on foreign direct investment

The stakeholders of multinational enterprises’ (MNEs) international investments play a large role in determining the success of those activities. Yet their role has been underappreciated in extant foreign direct investment (FDI) research. While previous work highlights the critical importance of location advantages for determining where firms invest, the role of the owners of these resources remains largely unexplored. This thesis examines how incorporating the agency of local stakeholders alters our theoretical understanding of FDI. The first chapter develops a theory of FDI location choice by reconceptualizing FDI markets as two-sided matching processes between MNEs and local stakeholders. I compare the fit of the two-sided model to existing one-sided models using data from the global power generation industry and find that two-sided models significantly outperform one-sided approaches. Building on this matching perspective, the second chapter explores how bargaining outcomes between MNEs and local stakeholders shape the distribution of FDI surplus. I argue that structural bargaining power — the constraints on bargaining outcomes imposed by the overall structure of the market — is a key determinant of either side’s bargaining position and show that actor concentration and heterogeneity predict this structural effect at the industry level, using global FDI data from 2013 to 2022. The final chapter studies how MNEs compete in the proposed FDI matching markets by drawing on value capture theory and its game-theoretical foundations. I construct an agent-based simulation of an FDI market and propose how strategic interactions influence MNEs’ development efforts, learning efforts, and search efforts. Overall, this thesis contributes to international business research by integrating agentic local stakeholders into FDI theories and demonstrating that FDI is best understood as a two-sided matching game between multinational firms and host-country stakeholders.